Investors hard to come by in mining industry downfall

Raymond Bernatchez, a consulting geologist, looks for specs of gold in a rock sample, at the Prospectors and Developers Association of Canada (PDAC) convention at the Metro Toronto Convention Centre on Sunday, March 1, 2015.

As the beleaguered mining sector suffers through another year of its deepening slump, the industry's boom days are but a distant memory.

It's an ugly time for the junior mining industry, as companies descend on Toronto for the annual Prospectors and Developers Association of Canada conference. Already starved for cash, small mining companies are facing their fourth consecutive year of declining commodity prices.

Since 2011, gold is down 30 per cent. Iron ore and metallurgical coal, both used to make steel, are about 70 per cent lower. Copper is down 40 per cent and nickel is off by 50 per cent. Shares of a slew of junior mining companies have crumbled to just a few pennies apiece.

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The downturn has made it much harder to entice investors.

Don Hoy, who discovered the large chromite deposit in Ontario's Ring of Fire mineral belt, said investors' attitude toward small mining companies has changed.

During the commodity boom several years ago, Mr. Hoy said "people did not want to miss the boat. They had to get involved." But, "a lot of projects were far fetched," he said.

"Now, investors are much more sophisticated. They want to see good assets and good management," said Mr. Hoy, whose company, Wolfden Resources Corp. is down to two people, including himself.

A handful of junior miners, such as Probe Mines Ltd., have been swallowed up by much larger mining companies. Some have been forced to throw in the towel. All have done the requisite cost-cutting and are trying to get funding to continue exploring and developing their projects.

At the conference, some miners have decided to save money by not paying for a booth and instead will walk around with their projects in their briefcases.

Still, some investors say it's times like this that bargains can be found.

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Long time resource investors Lukas Lundin and Rick Rule are some of those who will be hunting for mineral projects at the conference.

For Mr. Lundin, it will be his first time attending the annual conference in over a decade. Mr. Lundin, who runs a conglomerate of mining and energy companies with his brother, has managed to sell assets at sky-high prices and buy at the bottom.

Rick Rule, a long-time gold investor, has about $100-million to spend as chairman of Sprott U.S. Holdings, a unit of Sprott Asset Management.

Mr. Rule has a room at a nearby hotel and will be meeting with project owners and developers from breakfast through dinner. And Sprott has every room at its office booked for meetings.

But although there are seemingly endless miners with a project or idea to sell, Mr. Rule said many companies are worthless. In 1999, he wrote 11 cheques at the conference. Last year, he only wrote one.

This year, "it will truly be the year of bifurcation. It will be a stock picker's year," Mr. Rule said.

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At the top of the cycle, more than 1,300 mining companies were listed on the Toronto venture exchange, or exchange for junior miners. Today, there are about 1,200.

Although attendance at the mining conference is expected to be below its peak, it is still on track to pull in more than 20,000 miners, financiers, explorers and government officials from more than 100 countries.

"There are lots of discussions that we are at the lows and this is the time to go looking," said Andrew Cheatle, the executive director of PDAC and former executive with a number of small and big miners.

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